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05/23/2022

Wells Fargo Advisors pays $7M for SARS not filed

The Securities and Exchange Commission has announced charges against Wells Fargo Advisors for failing to file at least 34 Suspicious Activity Reports (SARs) in a timely manner between April 2017 and October 2021. Wells Fargo Advisors, the St. Louis-based broker-dealer, has agreed to pay $7 million to settle the charges.

According to the SEC’s order, due to Wells Fargo Advisors’ deficient implementation and failure to test a new version of its internal anti-money laundering (AML) transaction monitoring and alert system adopted in January 2019, the system failed to reconcile the different country codes used to monitor foreign wire transfers. As a result, Wells Fargo Advisors did not timely file at least 25 SARs related to suspicious transactions in its customers’ brokerage accounts involving wire transfers to or from foreign countries that it determined to be at a high or moderate risk for money laundering, terrorist financing, or other illegal money movements. The order also found that, beginning in April 2017, Wells Fargo Advisors failed to timely file at least nine additional SARs due to a failure to appropriately process wire transfer data into its AML transaction monitoring system in certain other situations.

In addition to the $7 million penalty, Wells Fargo Advisors, without admitting or denying the SEC’s findings, agreed to a censure and a cease and desist order. Wells Fargo Advisors is the trade name used by Wells Fargo Clearing Services, LLC, a registered broker-dealer and investment adviser subsidiary of Wells Fargo & Company,

05/23/2022

FDIC 2022 Risk Review

The Federal Deposit Insurance Corporation on Friday published its 2022 Risk Review, a comprehensive summary of emerging risks in the U.S. banking system as observed in 2021.

The 2022 Risk Review expands coverage of risks from prior reports by examining operational risk to banks from cyber threats and illicit activity, and climate-related financial risks faced by banking organizations. Monitoring these risks is among the FDIC's top priorities. The report also provides a retrospective summary of conditions in the U.S. economy, financial markets, and banking sector, and presents key credit and market risks to banks as of year-end 2021. The report focuses on the effects of these risks on community banks in particular, as the FDIC is the primary federal regulator for the majority of community banks in the U.S. banking system.

05/17/2022

Advisory: Cloaked DPRK IT workers seeking jobs

OFAC on Monday announced publication of an Advisory issued by the Departments of State and Treasury and the FBI, to alert the international community, the private sector, and the public to attempts by the Democratic People’s Republic of Korea (DPRK) and DPRK IT workers to obtain employment while posing as non-DPRK nationals.

The advisory provides detailed information on how DPRK IT workers operate and identifies red flags to help companies avoid hiring DPRK freelance developers and to help freelance and digital payment platforms identify DPRK IT workers abusing their services. A Fact Sheet, "Guidance on the Democratic People's Republic of Korea Information Technology Workers," has also been published.

05/16/2022

Deputy Comptroller testifies on artificial intelligence

On Friday, Deputy Comptroller for Operational Risk Policy Kevin Greenfield testified during a hearing before the House Financial Services Committee Task Force on Artificial Intelligence. He discussed the OCC's approach to responsible innovation and its supervisory expectations for banks’ use of AI, including regulatory compliance. Greenfield also discussed the OCC’s ongoing efforts to update the agency’s technological framework to support its bank supervision mandate.

05/11/2022

Federal Reserve adds to FEDS series

The Federal Reserve Board has added two new papers to its Finance and Economics Discussion Series (FEDS).

Cyberattacks and Financial Stability: Evidence from a Natural Experiment studies the effects of a unique multi-day cyberattack on a technology service provider, and identifies first- and second-round effects of the event. For banks using relevant services of the TSP, the attack impaired their ability to send payments over Fedwire, even though the Federal Reserve extended the time they had to submit payments. This impairment (first-round effect) caused other banks to receive fewer payments (second-round effect), leaving them at risk of having too few reserves to send their own payments (a potential third-round effect). These innocent-bystander banks responded differently depending on their size and reserve holdings. Those with sufficient reserves drew down their reserves. Of the others, smaller banks borrowed from the discount window, while larger banks borrowed in the federal funds market. These significant adjustments to operations and funding prevented the second-round effect from spilling over into third-round effect and broader financial instability. These findings highlight the important role for bank contingency planning, liquidity buffers, and the Federal Reserve in supporting the financial system’s recovery from a cyberattack.

The Collateral Channel and Bank Credit studies the role of the collateral channel for bank credit using confidential bank-firm-loan data. The authors estimate that for a 1 percent increase in collateral values, firms pledging real estate collateral experience a 12 basis point higher growth in bank lending with higher sensitivities for more credit constrained firms. Higher real estate values boost firm capital expenditures and lead to lower unemployment and higher employment growth and business creation. These estimates imply that as much as 37 percent of employment growth over the period from 2013 to 2019 can be attributed to the relaxation of borrowing constraints.

FEDS are Federal Reserve staff working papers that investigate a broad range of issues in economics and finance, with a focus on the U.S. economy and domestic financial markets.

05/05/2022

OCC scheduling virtual Innovation Office Hours

The Office of the Comptroller of the Currency has announced that it will host virtual Innovation Office Hours on June 14–15, 2022, to promote responsible innovation in the federal banking system.

Office hours are one-on-one meetings with representatives from the OCC Office of Innovation to discuss financial technology (fintech), new products or services, partnering with a bank or fintech company, or other matters related to responsible innovation in financial services. Each meeting will last no longer than one hour.

Interested parties should request a virtual office hours session by May 20, 2022, and are asked to provide information on the topic(s) they are interested in discussing with the Office of Innovation. The OCC will determine specific meeting times and arrangements after it receives and accepts the request.

05/05/2022

Intuit to pay $141M for TurboTax overcharges

New York Attorney General Letitia James on Wednesday announced a record multistate Assurance of Voluntary Compliance agreement with Intuit, Inc., the owner of TurboTax, for deceiving millions of low-income Americans into paying for tax services that should have been free. As a result of Attorney General James’ agreement, Intuit will pay $141 million in restitution to millions of consumers across the nation who were unfairly charged. In addition, Intuit must suspend TurboTax’s “free, free, free” ad campaign that lured customers with promises of free tax preparation services, only to deceive them into paying. All 50 states and the District of Columbia have signed onto the agreement.

A multistate investigation found that Intuit engaged in several deceptive and unfair trade practices that limited consumers’ participation in the IRS Free File Program. The company used confusingly similar names for both its IRS Free File product and its commercial “freemium” product. Intuit bid on paid search advertisements to direct consumers who were looking for the IRS Free File service to the TurboTax “freemium” product instead. Intuit also purposefully blocked its IRS Free File landing page from search engine results during the 2019 tax filing season, effectively shutting out eligible taxpayers from filing their taxes for free. Moreover, TurboTax’s website included a “Products and Pricing” page that stated it would “recommend the right tax solution,” but never displayed or recommended the IRS Free File program, even when consumers were ineligible for the “freemium” product.

Intuit will pay $141 million in restitution, of which roughly $2.5 million will be used for administrative fund costs.

Under the agreement, Intuit will provide restitution to nearly 4.4 million consumers who started using TurboTax’s Free Edition for tax years 2016 through 2018 and were told that they had to pay to file even though they were eligible to file for free using the IRS Free File program offered through TurboTax. Consumers are expected to receive a direct payment of approximately $30 for each year that they were deceived into paying for filing services. Impacted consumers will automatically receive notices and a check by mail.

Intuit has also agreed to reform its business practices, including:

  • Refraining from making misrepresentations in connection with promoting or offering any online tax preparation products;
  • Enhancing disclosures in its advertising and marketing of free products;
  • Designing its products to better inform users whether they will be eligible to file their taxes for free; and
  • Refraining from requiring consumers to start their tax filing over if they exit one of Intuit’s paid products to use a free product instead.

Intuit withdrew from the IRS Free File program in July 2021.

05/04/2022

Nacha guide on voice payments contract issues

Nacha has announced its Payments Innovation Alliance has created a legal and risk mitigation resource guide for financial institutions seeking to implement voice payments capabilities and applications (skills) through smart devices, such as the Amazon Echo and Google Nest.

As part of the series of Alliance Executive Briefings addressing conversational payments, Voice Payments Contractual Considerations for Financial Institutions provides background on the importance of Terms and Conditions (T&Cs) when offering voice payments services and how terms may be modified to best fit their skill. This guide also offers an overview of use cases, best practices for risk mitigation and a glossary of terms. Written by the Alliance's Conversational Payments and Cybersecurity Response Project Teams, it complements their other titles including Voice Payments: An Introduction and Overview; A Deep Dive into the Technology Behind Voice Payments; and Unwrapping Smart Speakers.

05/03/2022

FedNow pilot announces milestone

The Federal Reserve yesterday announced it has officially started onboarding pilot participants onto the FedNow Service, signaling that the initial testing phase of the FedNow Pilot Program is underway. A few organizations have now successfully connected and delivered test messages over a pilot version of the FedNow Service, marking a key milestone for the service, which remains on course to launch in 2023.

“The FedNow Service pilot participants, including financial institutions of all sizes, processors and correspondents, have been working hard at every step of this journey,” said Nick Stanescu, senior vice president and business executive of the FedNow Service. “Though much work remains, this progress sets the stage for thousands of financial institutions to be up and running with instant payments in the near future, including those that work with third-party payment providers.”

04/29/2022

FTC proposes protection against telemarketing for small business

The Federal Trade Commission yesterday announced a proposal to extend protections against telemarketing tricks and traps to small businesses and strengthen safeguards against other pernicious telemarketing tactics plaguing consumers. The agency is seeking comments on updates to the Telemarketing Sales Rule that would protect small businesses against business-to-business telemarketing schemes, address tech-support scams that target seniors, and extend click-to-cancel requirements to telemarketing.

The Commission issued a Notice of proposed rulemaking that would amend the recordkeeping rules of the Telemarketing Sales Rule (TSR, 16 CFR Part 310) and prohibit deception in business-to-business telemarketing calls.

The FTC also issued an advance notice of proposed rulemaking seeking information on issues related to tech-support scams, click-to-cancel requirements, and robocalls and other telemarketing to small businesses.

Comments will be accepted on both notices for 60 days following Federal Register publication.

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